The United States District Court for the Eastern District of Michigan granted summary judgment to an excess insurer and held that the excess policy would not be triggered until the underlying limits were exhausted by actual payment from the primary carrier. See Comerica Inc. v. Zurich American Ins. Co., No. 06-10353, 2007 WL 2178392 (E.D.Mich. July 27, 2007). A copy of the decision can be seen here.
Plaintiff Comerica, a financial services corporation, had settled five securities fraud class action lawsuits for $21 million. Comerica sought coverage for the settlement and related defense costs from its insurance carriers. The primary carrier provided a policy with $20 million in limits. However, it disputed coverage for some of the claims on various grounds and only agreed to pay $14 million toward the settlement. The insured then determined that it would pay $6 million itself and seek the remaining $1 million plus costs of defense ($2.6 million) from its excess carrier.
The excess carrier, however, refused to pay on the grounds that the primary coverage had not been exhausted (as well as for other reasons that the District Court chose not to address). The excess policy at issue stated that coverage was triggered only “after all such ‘Underlying Insurance’ has been reduced or exhausted by payments for losses.” The District Court agreed, holding that the plain language of the excess policy required exhaustion of the underlying limits by actual payment of losses from the primary carrier before the excess policy was triggered.
The District Court held that the insured could not “fill the gap” between the $14 million paid by the primary carrier and the $20 million in underlying limits. Because there was no exhaustion, therefore, the excess carrier had no obligation to the insured under the excess policy. The District Court then granted the excess carrier’s motion for summary judgment.
